In a move that will concern sub-contractors, Fraser J at the Technology and Construction Court (TCC) found that a sub-contractor cannot rely on project insurance where the sub-contract specifically requires them to maintain separate insurance.
Lakehouse Contracts Ltd (the "Contractor") was employed by the Claimants to carry out extensive works to a school in London. The Contractor sub-contracted the roofing works for the project to Cambridge Polymer Roofing ("CPR").
The overall works were covered by project insurance which purported to cover the Contractor and any sub-contractors. In addition, the sub-contract specifically required CPR to maintain its own insurance cover to the sum of £5 million.
CPR were carrying out hot works on the roof when a fire broke out, causing extensive damage to the buildings.
The project insurers paid a settlement of £8.75 million to the Claimants to cover the damage and the issue then became whether the project insurers could claim a contribution of £5 million from CPR. CPR argued that they were co-insured under the policy and the project insurers could not pursue a subrogated claim against them.
Fraser J found that the project insurers could pursue a claim against CPR.
Where the sub-contractor had expressly agreed in the sub-contract to maintain its own insurance cover, they could not rely on the project insurance. Part of the logic behind this was that the project insurance protected a specified group, including sub-contractors, but the group had to be joined. The insurers accepted that those sub-contractors hired prior to the insurance policy being taken out were automatically within the defined group covered under the policy and that sub-contractors appointed after the policy was taken out were implied to have joined the defined group on execution of the sub-contract. The problem for CPR was that, by expressly agreeing in its sub-contract to maintain £5 million cover separately, they had never joined the 'defined group' of subcontractors to whom cover was extended.
To the extent that CPR were covered by their £5 million insurance policy, they could not rely on the project insurance.
This case may come as a surprise to many sub-contractors. This decision confirms that it is the underlying contract between the contractor and sub-contractor and the parties' intentions that will determine how the insurance provisions are interpreted. Sub-contractors would be well advised to read the terms of their sub-contracts carefully and not to assume that a project insurance policy will provide protection.
This decision is likely to lead to sub-contractors pushing back on insurance provisions in order to avoid any insurance obligations which could conflict with any overarching project insurance.
As project insurance is being increasingly used, this case will be seen as a major issue for sub-contractors and therefore be forced up the chain to become of concern to contractors. It is possible that this could damage the trust in project insurance policies moving forward, no longer being seen as the catch all policy they were intended to be.